Employers periodically fail to sign employment agreements. This situation generally occurs when the employer obtains an employee’s signature on a form employment agreement and simply puts the document in the employee’s personnel file. In this scenario, the signature of an authorized representative of the company is never added to the document. The missing signature usually comes to light when the employee violates the agreement years later, resulting in the employer wanting to take legal action to enforce the agreement. A recent Texas Court of Appeals opinion suggests that an unsigned employment agreement may be unenforceable if the agreement contains a term of more than one year.
In Holloway v. Dekkers, the Dallas Court of Appeals held that an employment agreement lacking the employer’s signature was unenforceable. Dekkers and Twin Lakes Golf Course hired Holloway to serve as the head golf professional at Twin Lakes. The parties initially had an oral agreement that Holloway’s employment contract would be for three (3) years. After further negotiations, the parties agreed that Holloway’s employment would last for a one-year term with the understanding that, prior to the end of one (1) year, they would negotiate the terms of a three (3) year agreement.
Holloway moved from Illinois to Texas and started his employment on August 5, 2008. Within a week, Dekkers’ daughter-in-law presented Holloway with a one page employment agreement dated July 23, 2008. In addition to other terms, the document provided for a “yearly contract that will be up for renewal after annual performance evaluation.” It also contained the recitation, “This contract is hereby agreed upon by both [Dekkers and Holloway] and verified by” their signatures. Holloway signed the document and was given a copy. Dekkers, as owner of Twin Lakes, never signed the document. Holloway was terminated on September 30, 2008, approximately eight weeks later.
Holloway filed suit for breach of contract and fraudulent inducement. The trial court granted summary judgment in favor of Dekkers and Twin Lakes. The Court of Appeals affirmed and held the agreement was unenforceable due to the statute of frauds. The statute of frauds encompasses agreements that are “not to be performed within one year from the date of making the agreement.” If there is more than a year between the time of the making the contract and the time when performance is to be completed, then a writing is required to render the agreement enforceable. The Court of Appeals found that the oral agreement between Holloway and Dekkers/Town Lakes was to work for a term from August 5, 2008 to August 5, 2009, one day more than a year, meaning it had to be backed up in writing for Holloway to enforce it.
The employment agreement at issue in this case involved an employee trying to enforce the agreement instead of the employer. However, employees wanting to get out of their noncompetition or other obligations in their employment agreements that an employer forgot to sign may rely upon this case to argue that the agreement is unenforceable. The statute of frauds argument may be successful if the employment agreement contains a term of more than one year.
Holloway also argued that his initial work for Twin Lakes amounted to partial performance, sufficient to enforce the contract. The Court of Appeals rejected this argument because Holloway was already paid for the work that was partially performed.
Holloway’s fraudulent inducement claim also failed. The Court of Appeals stated that the cause of action fails because the agreement failed. In other words, Holloway could not be induced into a nonexistent agreement.
Employers should always be careful to make sure their employment agreements are signed by both employees and themselves. The best practice is to make sure employment agreements are signed by all parties before new employees begin their employment in order to minimize issues relating to the enforceability of the agreements.
Issues like this plus many more will be addressed at Seyfarth Shaw’s upcoming breakfast briefing in Houston, Texas entitled “Trade Secrets, IP and Your Employees.” The breakfast briefing will take place on October 10, 2012 from 8:00 a.m. to 10:30 a.m. c.s.t. at the Hilton Americas in Houston. You can register here for the complimentary breakfast briefing.